UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Exact name of Registrants as specified
in their charters, address of principal IRS Employer
Commission executive offices and Identification
File Number Registrants' telephone number Number
- ----------- --------------------------------------- --------------
1-8841 FPL GROUP, INC. 59-2449419
1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
State or other jurisdiction of incorporation or organization: Florida
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) have been subject to such filing
requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each class of FPL Group, Inc. common
stock, as of the latest practicable date: Common Stock, $.01 Par Value,
outstanding at March 31, 1998: 181,482,385 shares
As of March 31, 1998, there were issued and outstanding 1,000 shares of
Florida Power & Light Company's common stock, without par value, all of which
were held, beneficially and of record, by FPL Group, Inc.
______________________________
This combined Form 10-Q represents separate filings by FPL Group, Inc. and
Florida Power & Light Company. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf. Florida
Power & Light Company makes no representations as to the information relating
to FPL Group, Inc.'s other operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and
Florida Power & Light Company (FPL) (collectively, the Company) are hereby
filing cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) of the
Company made by or on behalf of the Company which are made in this combined
Form 10-Q, in presentations, in response to questions or otherwise. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook) are
not statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in the forward-looking
statements. Accordingly, any such statements are qualified in their entirety
by reference to, and are accompanied by, the following important factors that
could cause the Company's actual results to differ materially from those
contained in forward-looking statements of the Company made by or on behalf of
the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions, including those of the
Federal Energy Regulatory Commission (FERC), the Florida Public Service
Commission (FPSC) and the Nuclear Regulatory Commission, with respect to
allowed rates of return, industry and rate structure, operation of nuclear
power facilities, acquisition and disposal of assets and facilities, operation
and construction of plant facilities, recovery of fuel and purchased power
costs, decommissioning costs, and present or prospective wholesale and retail
competition (including but not limited to retail wheeling and transmission
costs).
The business and profitability of the Company are also influenced by economic
and geographic factors including political and economic risks, changes in and
compliance with environmental and safety laws and policies, weather conditions
(including natural disasters such as hurricanes), population growth rates and
demographic patterns, competition for retail and wholesale customers, pricing
and transportation of commodities, market demand for energy from plants or
facilities, changes in tax rates or policies or in rates of inflation,
unanticipated development project delays or changes in project costs,
unanticipated changes in operating expenses and capital expenditures, capital
market conditions, competition for new energy development opportunities, and
legal and administrative proceedings (whether civil, such as environmental, or
criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the Company.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FPL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
OPERATING REVENUES .................................................................... $1,338 $1,445
OPERATING EXPENSES:
Fuel, purchased power and interchange ............................................... 436 544
Other operations and maintenance..................................................... 299 269
Depreciation and amortization ....................................................... 249 268
Taxes other than income taxes ....................................................... 136 139
Total operating expenses .......................................................... 1,120 1,220
OPERATING INCOME ...................................................................... 218 225
OTHER INCOME (DEDUCTIONS):
Interest charges .................................................................... (63) (71)
Preferred stock dividends - FPL ..................................................... (4) (6)
Other - net ......................................................................... 7 8
Total other deductions - net ...................................................... (60) (69)
INCOME BEFORE INCOME TAXES ............................................................ 158 156
INCOME TAXES .......................................................................... 50 55
NET INCOME ............................................................................ $ 108 $ 101
Earnings per share of common stock (basic and assuming dilution) ...................... $ 0.63 $ 0.58
Dividends per share of common stock ................................................... $ 0.50 $ 0.48
Average number of common shares outstanding ........................................... 173 173
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the combined Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (1997 Form 10-K) for FPL
Group and FPL.
FPL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and other property, including nuclear
fuel and construction work in progress ......................................... $17,908 $17,820
Less accumulated depreciation and amortization ................................... (8,704) (8,466)
Total property, plant and equipment - net ...................................... 9,204 9,354
CURRENT ASSETS:
Cash and cash equivalents ........................................................ 72 54
Customer receivables, net of allowances of $7 and $9, respectively ............... 438 501
Materials, supplies and fossil fuel inventory - at average cost .................. 289 302
Other ............................................................................ 243 244
Total current assets ........................................................... 1,042 1,101
OTHER ASSETS:
Special use funds of FPL ......................................................... 1,102 1,007
Other investments ................................................................ 395 282
Other ............................................................................ 728 705
Total other assets ............................................................. 2,225 1,994
TOTAL ASSETS ....................................................................... $12,471 $12,449
CAPITALIZATION:
Common stock ..................................................................... $ 2 $ 2
Additional paid-in capital ....................................................... 3,028 3,038
Retained earnings ................................................................ 1,825 1,804
Accumulated other comprehensive income ........................................... 1 1
Total common shareholders' equity .............................................. 4,856 4,845
Preferred stock of FPL without sinking fund requirements ......................... 226 226
Long-term debt ................................................................... 2,950 2,949
Total capitalization ........................................................... 8,032 8,020
CURRENT LIABILITIES:
Debt and preferred stock due within one year ..................................... 310 332
Accounts payable ................................................................. 297 368
Accrued interest, taxes and other ................................................ 837 799
Total current liabilities ...................................................... 1,444 1,499
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................ 1,528 1,473
Unamortized regulatory and investment tax credits ................................ 383 395
Other ............................................................................ 1,084 1,062
Total other liabilities and deferred credits ................................... 2,995 2,930
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ............................................... $12,471 $12,449
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group
and FPL.
FPL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 108 $ 101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 249 268
Other - net ...................................................................... 97 142
Net cash provided by operating activities ...................................... 454 511
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures of FPL ........................................................ (159) (110)
Independent power investments ...................................................... (350) (9)
Distributions and loan repayments from partnerships and joint ventures ............. 221 13
Other - net ........................................................................ (23) 15
Net cash used in investing activities .......................................... (311) (91)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ......................................................... - 5
Retirement of long-term debt and preferred stock ................................... (180) (126)
Increase in commercial paper ....................................................... 158 -
Repurchase of common stock ......................................................... (17) (17)
Dividends on common stock .......................................................... (86) (83)
Net cash used in financing activities .......................................... (125) (221)
Net increase in cash and cash equivalents ............................................ 18 199
Cash and cash equivalents at beginning of period ..................................... 54 196
Cash and cash equivalents at end of period ........................................... $ 72 $ 395
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................................. $ 51 $ 68
Cash paid for income taxes ......................................................... - $ 28
Supplemental schedule of noncash investing and financing activities:
Additions to capital lease obligations ............................................. $ 1 $ 18
Debt assumed for property additions ................................................ - $ 410
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group
and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
OPERATING REVENUES .................................................................... $1,295 $1,399
OPERATING EXPENSES:
Fuel, purchased power and interchange ............................................... 430 525
Other operations and maintenance .................................................... 268 246
Depreciation and amortization ....................................................... 244 263
Income taxes ........................................................................ 57 58
Taxes other than income taxes ....................................................... 137 139
Total operating expenses .......................................................... 1,136 1,231
OPERATING INCOME ...................................................................... 159 168
OTHER INCOME (DEDUCTIONS):
Interest charges .................................................................... (50) (59)
Other - net ......................................................................... (2) 1
Total other deductions - net ...................................................... (52) (58)
NET INCOME ............................................................................ 107 110
PREFERRED STOCK DIVIDENDS ............................................................. 4 6
NET INCOME AVAILABLE TO FPL GROUP ..................................................... $ 103 $ 104
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group
and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Plant in service, including nuclear fuel and construction work in progress ....... $17,219 $17,136
Less accumulated depreciation and amortization ................................... (8,590) (8,355)
Electric utility plant - net ................................................... 8,629 8,781
CURRENT ASSETS:
Cash and cash equivalents ........................................................ 12 3
Customer receivables, net of allowances of $7 and $9, respectively ............... 414 471
Materials, supplies and fossil fuel inventory - at average cost .................. 234 242
Other ............................................................................ 211 226
Total current assets ........................................................... 871 942
OTHER ASSETS:
Special use funds ................................................................ 1,102 1,007
Other ............................................................................ 442 442
Total other assets ............................................................. 1,544 1,449
TOTAL ASSETS ....................................................................... $11,044 $11,172
CAPITALIZATION:
Common shareholder's equity ...................................................... $ 4,823 $ 4,814
Preferred stock without sinking fund requirements ................................ 226 226
Long-term debt ................................................................... 2,420 2,420
Total capitalization ........................................................... 7,469 7,460
CURRENT LIABILITIES:
Debt and preferred stock due within one year ..................................... 54 220
Accounts payable ................................................................. 281 344
Accrued interest, taxes and other ................................................ 777 748
Total current liabilities ...................................................... 1,112 1,312
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................ 1,127 1,070
Unamortized regulatory and investment tax credits ................................ 383 395
Other ............................................................................ 953 935
Total other liabilities and deferred credits ................................... 2,463 2,400
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ............................................... $11,044 $11,172
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group
and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 107 $ 110
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 244 263
Other - net ...................................................................... 102 107
Net cash provided by operating activities ...................................... 453 480
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................... (159) (110)
Other - net ........................................................................ (21) (23)
Net cash used in investing activities .......................................... (180) (133)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt and preferred stock ................................... (180) (125)
Increase in commercial paper ....................................................... 14 -
Dividends .......................................................................... (98) (104)
Net cash used in financing activities .......................................... (264) (229)
Net increase in cash and cash equivalents ............................................ 9 118
Cash and cash equivalents at beginning of period ..................................... 3 78
Cash and cash equivalents at end of period ........................................... $ 12 $ 196
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................................. $ 48 $ 62
Cash paid for income taxes ......................................................... $ - $ 72
Supplemental schedule of noncash investing and financing activities:
Additions to capital lease obligations ............................................. $ 1 $ 18
</TABLE>
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on Pages 9 through 11 herein and the Notes to
Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group
and FPL.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying condensed consolidated financial statements should be read in
conjunction with the combined 1997 Form 10-K for FPL Group and FPL. In the
opinion of FPL Group and FPL, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1998 and 1997 have been made. Certain amounts included
in the prior year's consolidated financial statements have been reclassified to
conform to the current year's presentation. The results of operations for an
interim period may not give a true indication of results for the year.
1. Summary of Significant Accounting and Reporting Policies
Revenues and Rates - In March 1998, a large customer of FPL withdrew its
petition requesting a limited scope proceeding to reduce FPL's base rates. The
docket was subsequently closed by the FPSC.
2. Capitalization
FPL Group Common Stock - During the three months ended March 31, 1998, FPL
Group repurchased 280,000 shares of common stock under its share repurchase
program. A total of approximately 1 million shares have been repurchased under
the share repurchase program that began in April 1997.
Long-Term Incentive Plan - Performance shares granted to date under FPL Group's
long-term incentive plan resulted in assumed incremental shares of common stock
outstanding for purposes of computing both basic earnings per share and diluted
earnings per share for the three months ended March 31, 1998 and 1997. These
incremental shares were not material and did not cause diluted earnings per
share to differ from basic earnings per share.
Other - In the first quarter of 1998, FPL Group adopted Statement of Financial
Accounting Standards No. (FAS) 130, "Reporting Comprehensive Income." The
statement establishes standards for reporting comprehensive income and its
components. Comprehensive income of FPL Group totaling $109 million and $102
million for the three months ended March 31, 1998 and 1997, respectively,
includes net income, unrealized gains (losses) on securities and foreign
currency translation adjustments. Accumulated other comprehensive income is
separately displayed in the condensed consolidated balance sheets of FPL Group.
3. Commitments and Contingencies
Commitments - FPL has made commitments in connection with a portion of its
projected capital expenditures. Capital expenditures for the construction or
acquisition of additional facilities and equipment to meet customer demand
are estimated to be approximately $2.0 billion for 1998 through 2000.
Included in this three-year forecast are capital expenditures for 1998 of
approximately $620 million, of which $159 million had been spent through
March 31, 1998. Also, in January 1998 FPL Group announced plans to purchase
all of Central Maine Power Company's (Central Maine) non-nuclear generation
assets. The Central Maine transaction is expected to close in the fourth
quarter of 1998 and is subject to approval by federal and state regulators.
Commitments for independent power investments, including the acquisition
mentioned above, are approximately $850 million for 1998. FPL Group Capital
Inc (FPL Group Capital) and its subsidiaries have guaranteed approximately
$235 million of lease obligations, debt service payments and other payments
subject to certain contingencies.
Insurance - Liability for accidents at nuclear power plants is governed by
the Price-Anderson Act, which limits the liability of nuclear reactor owners
to the amount of the insurance available from private sources and under an
industry retrospective payment plan. In accordance with this Act, FPL
maintains $200 million of private liability insurance, which is the maximum
obtainable, and participates in a secondary financial protection system under
which it is subject to retrospective assessments of up to $327 million per
incident at any nuclear utility reactor in the United States, payable at a
rate not to exceed $40 million per incident per year.
FPL participates in nuclear insurance mutual companies that provide $2.75
billion of limited insurance coverage for property damage, decontamination
and premature decommissioning risks at its nuclear plants. The proceeds from
such insurance, however, must first be used for reactor stabilization and
site decontamination before they can be used for plant repair. FPL also
participates in an insurance program that provides limited coverage for
replacement power costs if a nuclear plant is out of service because of an
accident. In the event of an accident at one of FPL's or another
participating insured's nuclear plants, FPL could be assessed up to $68
million in retrospective premiums.
In the event of a catastrophic loss at one of FPL's nuclear plants, the
amount of insurance available may not be adequate to cover property damage
and other expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be borne by FPL and could have a material adverse effect
on FPL Group's and FPL's financial condition.
FPL self-insures certain of its transmission and distribution (T&D) property
due to the high cost and limited coverage available from third-party
insurers. FPL maintains a funded storm and property insurance reserve, which
totaled approximately $261 million at March 31, 1998, for T&D property storm
damage or assessments under the nuclear insurance program. Recovery from
customers of any losses in excess of the storm and property insurance reserve
will require the approval of the FPSC. FPL's available lines of credit
include $300 million to provide additional liquidity in the event of a T&D
property loss.
Contracts - FPL has entered into certain long-term purchased power and fuel
contracts. Take-or-pay purchased power contracts with the Jacksonville
Electric Authority (JEA) and with subsidiaries of the Southern Company
(Southern Companies) provide approximately 1,300 megawatts (mw) of power
through mid-2010, and thereafter 374 mw through 2022. FPL also has various
firm pay-for-performance contracts to purchase approximately 1,000 mw from
certain cogenerators and small power producers (qualifying facilities) with
expiration dates ranging from 2002 through 2026. The purchased power
contracts provide for capacity and energy payments. Energy payments are
based on the actual power taken under these contracts. Capacity payments for
the pay-for-performance contracts are subject to the qualifying facilities
meeting certain contract conditions. The fuel contracts provide for the
transportation and supply of natural gas and coal and the supply and use of
Orimulsion. Orimulsion is a controversial new fuel, the use of which is
subject to approval by Florida's Governor and Cabinet acting as the Power
Plant Siting Board.
The required capacity and minimum payments through 2002 under these contracts
are estimated to be as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Capacity payments:
JEA and Southern Companies ...................................... $200 $210 $210 $210 $210
Qualifying facilities (a) ....................................... $350 $360 $370 $380 $400
Minimum payments, at projected prices:
Natural gas, including transportation ........................... $230 $220 $220 $220 $220
Orimulsion (b) .................................................. - - $140 $140 $140
Coal ............................................................ $ 50 $ 40 $ 40 $ 40 $ 40
(a) Includes approximately $35 million, $40 million, $40 million, $40 million and $45 million, respectively,
for capacity payments associated with two projects that are currently in dispute. These capacity
payments are subject to the outcome of the related litigation. See Litigation.
(b) All of FPL's Orimulsion-related contract obligations are subject to obtaining the required regulatory approvals.
</TABLE>
Capacity, energy and fuel charges under these contracts were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 Charges 1997 Charges
Energy/ Energy/
Capacity Fuel (a) Capacity Fuel (a)
(Millions of Dollars)
<S> <C> <C> <C> <C>
JEA and Southern Companies .......................................... $49(b) $31 $52(b) $35
Qualifying facilities................................................ $74(c) $25 $73(c) $29
Natural gas ......................................................... - $54 - $89
Coal ................................................................ - $13 - $11
(a) Recovered through the fuel clause.
(b) Recovered through base rates and the capacity cost recovery clause (capacity clause).
(c) Recovered through the capacity clause.
</TABLE>
Litigation - In 1997, FPL filed a complaint against the owners of two
qualifying facilities (plant owners) seeking an order declaring that FPL's
obligations under the power purchase agreements with the qualifying
facilities were rendered of no force and effect because the power plants
failed to accomplish commercial operation before January 1, 1997, as required
by the agreements. In 1997, the plant owners filed for bankruptcy under
Chapter XI of the United States Bankruptcy Code, ceased all attempts to
operate the power plants and entered into an agreement with the holders of
more than 70% of the bonds that partially financed the construction of the
plants. This agreement gives the holders of a majority of the principal
amount of the bonds (the majority bondholders) the right to control, fund and
manage any litigation against FPL and the right to settle with FPL on any
terms such holders approve, provided that certain agreements are not affected
and certain conditions are met. In January 1998, the plant owners (through
the attorneys for the majority bondholders) filed an answer denying the
allegations in FPL's complaint and asserted a counterclaim for approximately
$2 billion, consisting of all capacity payments that could have been made
over the 30-year term of the power purchase agreements, plus some security
deposits. The plant owners also seek three times their actual damages for
alleged violations of Florida antitrust laws, plus attorneys' fees.
The Florida Municipal Power Agency (FMPA), an organization comprised of
municipal electric utilities, has sued FPL for allegedly breaching a
"contract" to provide transmission service to the FMPA and its members and
for breaching antitrust laws by monopolizing or attempting to monopolize the
provision, coordination and transmission of electric power in refusing to
provide transmission service, or to permit the FMPA to invest in and use
FPL's transmission system, on the FMPA's proposed terms. The FMPA seeks $140
million in damages, before trebling for the antitrust claim, and court orders
requiring FPL to permit the FMPA to invest in and use FPL's transmission
system on "reasonable terms and conditions" and on a basis equal to FPL. In
1995, the Court of Appeals vacated the District Court's summary judgment in
favor of FPL and remanded the matter to the District Court for further
proceedings. In 1996, the District Court ordered the FMPA to seek a
declaratory ruling from the FERC regarding certain issues in the case. All
other action in the case has been stayed pending the FERC's ruling.
A former cable installation contractor for Telesat Cablevision, Inc.
(Telesat), a wholly-owned subsidiary of FPL Group Capital, sued FPL Group,
FPL Group Capital and Telesat for breach of contract, fraud, violation of
racketeering statutes and several other claims. The trial court entered a
judgment in favor of FPL Group and Telesat on nine of twelve counts,
including all of the racketeering and fraud claims, and in favor of FPL Group
Capital on all counts. It also denied all parties' claims for attorneys'
fees. However, the jury in the case awarded the contractor damages totaling
approximately $6 million against FPL Group and Telesat for breach of contract
and tortious interference. All parties have appealed.
FPL Group and FPL believe that they have meritorious defenses to the
litigation to which they are parties and are vigorously defending the suits.
Accordingly, the liabilities, if any, arising from the proceedings are not
anticipated to have a material adverse effect on their financial statements.
4. Summarized Financial Information of FPL Group Capital
FPL Group Capital's debenture is guaranteed by FPL Group and included in FPL
Group's consolidated balance sheets. Operating revenues of FPL Group Capital
for the three months ended March 31, 1998 and 1997 were $44 million and $46
million, respectively. For the same periods, operating expenses were $41
million and $47 million, respectively, and net income was $11 million and $1
million, respectively.
At March 31, 1998, FPL Group Capital had $291 million of current assets, $1.6
billion of noncurrent assets, $386 million of current liabilities and $1.1
billion of noncurrent liabilities. At December 31, 1997, FPL Group Capital
had current assets of $156 million, noncurrent assets of $1.4 billion,
current liabilities of $252 million and noncurrent liabilities of $999
million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements contained herein and Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing in the
1997 Form 10-K for FPL Group and FPL. The results of operations for an interim
period may not give a true indication of results for the year. In the
following discussion, all comparisons are with the corresponding items in the
prior year.
RESULTS OF OPERATIONS
FPL continues to represent the predominant portion of FPL Group's operations.
However, for the three months ended March 31, 1998, FPL Group's net income
increased primarily due to better operating results in FPL Energy, Inc.'s
(FPL Energy) independent power investments. FPL's net income was essentially
flat compared with the prior year.
FPL's revenues from base rates for the three months ended March 31, 1998
decreased to $750 million from $769 million for the same period in 1997. The
decline in base revenues resulted from milder weather, as well as the impact
of several severe storms and tornadoes during the first quarter of 1998.
Partly offsetting this decline was a 1.7% increase in customer accounts. Cost
recovery clause revenues and franchise fees comprise substantially all of the
remaining portion of operating revenues. Such revenues represent a
pass-through of costs and do not significantly affect net income.
Fluctuations in these revenues are primarily driven by changes in energy
sales, fuel prices and capacity charges.
In March 1998, a large customer of FPL withdrew its petition requesting a
limited scope proceeding to reduce FPL's base rates. The docket was
subsequently closed by the FPSC.
O&M expenses increased for the three months ended March 31, 1998, primarily
due to additional spending associated with improving service reliability and
storm restoration costs. Depreciation and amortization expense in all
periods presented includes amortization recorded under the special
amortization program, which is a function of retail base revenues.
Depreciation and amortization expense decreased for the first quarter of 1998
mainly due to the decline in revenues discussed above. In March 1998, FPL
filed depreciation studies with the FPSC. If approved, the new studies would
result in a $26 million annual increase in depreciation expense. The FPSC
is scheduled to consider this matter in the fourth quarter of 1998. Interest
and preferred stock dividend requirements also declined during the first
quarter of 1998, resulting from reductions in average debt and preferred
stock balances.
FPL Energy's operating results improved for the three months ended March 31,
1998. The improvements were mainly in natural gas and wind projects,
including two gas-fired plants located in Massachusetts and New Jersey in
which an interest was acquired during the first quarter of 1998.
FPL Group is continuing to work to resolve the potential impact of the year
2000 on the processing of information by its computer systems. An assessment
of identified software, including vendor-supplied software, has been
substantially completed and work is underway to make the necessary
modifications. The estimated cost of addressing year 2000 issues in software
applications is not expected to have a material adverse effect on FPL Group's
financial statements. FPL Group continues to assess the potential financial
and operational impacts of computerized processes embedded in operating
equipment and has begun to evaluate the year 2000 readiness of major
suppliers, customers, financial institutions and others with whom
transactions and information flow electronically.
LIQUIDITY AND CAPITAL RESOURCES
Using available cash flows from operations, FPL repaid certain series of
secured medium-term notes that matured during the first quarter of 1998.
Additionally, during the three months ended March 31, 1998, FPL Group
repurchased 280,000 shares of common stock. These actions are consistent
with management's intent to reduce debt and preferred stock balances and the
number of outstanding shares of common stock. See Note 2.
In March 1998, FPL filed with the FPSC a ten-year power plant site plan that
includes adding approximately 2,500 mw of generating capacity to meet the
electricity needs of a growing customer base. The plan includes repowering
two existing plants by 2002 and 2004, respectively, and adding two new gas-
fired units in 2006 and 2007 at the Martin power plant. These proposed
projects are not expected to have a significant effect on capital
expenditures for 1998 and 1999, but will increase capital expenditures in
2000 by approximately $200 million. For information concerning capital
commitments, see Note 3.
PART II - OTHER INFORMATION
Item 5. Other Information
(a) Reference is made to Item 1. Business - FPL Operations - Regulation in
the 1997 Form 10-K for FPL Group and FPL.
In March 1998, a large customer of FPL withdrew its petition requesting
a limited scope proceeding to reduce FPL's base rates. The docket was
subsequently closed by the FPSC.
(b) Reference is made to Item 1. Business - FPL Operations - System
Capability and Load in the 1997 Form 10-K for FPL Group and FPL.
In March 1998, FPL filed with the FPSC a ten-year power plant site plan
that includes adding approximately 2,500 mw of generating capacity to
meet the electricity needs of a growing customer base. The plan
includes repowering two existing plants by 2002 and 2004, respectively,
and adding two new gas-fired units in 2006 and 2007 at the Martin power
plant. These proposed projects are not expected to have a significant
effect on capital expenditures for 1998 and 1999, but will increase
capital expenditures in 2000 by approximately $200 million.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit FPL
Number Description Group FPL
------- ----------------------- ----- ---
12 Computation of Ratios x
27 Financial Data Schedule x x
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FPL GROUP, INC.
FLORIDA POWER & LIGHT COMPANY
(Registrants)
Date: May 1, 1998
K. MICHAEL DAVIS
K. Michael Davis
Controller and Chief Accounting Officer of FPL Group, Inc.
Vice President, Accounting, Controller and
Chief Accounting Officer of Florida Power & Light Company
(Principal Financial Officer of the Registrants)
EXHIBIT 12
FLORIDA POWER & LIGHT COMPANY
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
(Millions of Dollars)
RATIO OF EARNINGS TO FIXED CHARGES
<S> <C>
Earnings, as defined:
Net income .............................................................................. $ 107
Income taxes ............................................................................ 54
Fixed charges, as below ................................................................. 54
Total earnings, as defined ............................................................ $ 215
Fixed charges, as defined:
Interest expense ........................................................................ $ 50
Rental interest factor .................................................................. 1
Fixed charges included in nuclear fuel cost ............................................. 3
Total fixed charges, as defined ....................................................... $ 54
Ratio of earnings to fixed charges ........................................................ 3.98
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Earnings, as defined:
Net income .............................................................................. $ 107
Income taxes ............................................................................ 54
Fixed charges, as below ................................................................. 54
Total earnings, as defined ............................................................ $ 215
Fixed charges, as defined:
Interest expense ........................................................................ $ 50
Rental interest factor .................................................................. 1
Fixed charges included in nuclear fuel cost ............................................. 3
Total fixed charges, as defined ....................................................... 54
Non-tax deductible preferred stock dividends .............................................. 4
Ratio of income before income taxes to net income ......................................... 1.50
Preferred stock dividends before income taxes ............................................. 6
Combined fixed charges and preferred stock dividends ...................................... $ 60
Ratio of earnings to combined fixed charges and preferred stock dividends ................. 3.58
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from FPL Group's
and FPL's condensed consolidated balance sheet as of March 30, 1998 and
condensed consolidated statements of income and cash flows for the three months
ended March 30, 1998 and is qualified in its entirety by reference to such
financial statements.
<CIK> 0000753308
<NAME> FPL Group, Inc.
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,629
<OTHER-PROPERTY-AND-INVEST> $2,072
<TOTAL-CURRENT-ASSETS> $1,042
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $728
<TOTAL-ASSETS> $12,471
<COMMON> $2
<CAPITAL-SURPLUS-PAID-IN> $3,029
<RETAINED-EARNINGS> $1,825
<TOTAL-COMMON-STOCKHOLDERS-EQ> $4,856
$0
$226
<LONG-TERM-DEBT-NET> $2,950
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $0
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $4,439
<TOT-CAPITALIZATION-AND-LIAB> $12,471
<GROSS-OPERATING-REVENUE> $1,338
<INCOME-TAX-EXPENSE> $50
<OTHER-OPERATING-EXPENSES> $1,120
<TOTAL-OPERATING-EXPENSES> $1,120
<OPERATING-INCOME-LOSS> $218
<OTHER-INCOME-NET> $7
<INCOME-BEFORE-INTEREST-EXPEN> $171
<TOTAL-INTEREST-EXPENSE> $63
<NET-INCOME> $108
$4
<EARNINGS-AVAILABLE-FOR-COMM> $108
<COMMON-STOCK-DIVIDENDS> $86
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $454
<EPS-PRIMARY> $0.63
<EPS-DILUTED> $0.63
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from FPL's
condensed consolidated balance sheet as of March 30, 1998 and condensed
consolidated statements of income and cash flows for the three months ended
March 30, 1998 and is qualified in its entirety by reference to such financial
statements.
<CIK> 0000037634
<NAME> Florida Power & Light Company
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,629
<OTHER-PROPERTY-AND-INVEST> $1,102
<TOTAL-CURRENT-ASSETS> $871
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $442
<TOTAL-ASSETS> $11,044
<COMMON> $0
<CAPITAL-SURPLUS-PAID-IN> $0
<RETAINED-EARNINGS> $0
<TOTAL-COMMON-STOCKHOLDERS-EQ> $4,823
$0
$226
<LONG-TERM-DEBT-NET> $2,420
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $54
<LONG-TERM-DEBT-CURRENT-PORT> $0
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $3,521
<TOT-CAPITALIZATION-AND-LIAB> $11,044
<GROSS-OPERATING-REVENUE> $1,295
<INCOME-TAX-EXPENSE> $57
<OTHER-OPERATING-EXPENSES> $1,079
<TOTAL-OPERATING-EXPENSES> $1,136
<OPERATING-INCOME-LOSS> $159
<OTHER-INCOME-NET> ($2)
<INCOME-BEFORE-INTEREST-EXPEN> $157
<TOTAL-INTEREST-EXPENSE> $50
<NET-INCOME> $107
$4
<EARNINGS-AVAILABLE-FOR-COMM> $103
<COMMON-STOCK-DIVIDENDS> $0
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $453
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
